THE ECONOMIC RESURGENCE OF THE GREAT LAKES STATE LEADS OVERSEAS
It wasn’t a clear-cut decision, admits Shilpa Patel, CFO of Testek Inc. Although Testek—a manufacturer of custom test equipment for the aerospace, automotive and nautical sectors—could benefit financially from attending the 2013 Dubai Airshow, the expense of the exhibition was considerable. “There was the cost of the trade show itself and then there were the hotel costs,” Patel says. She places the expense between $8,000 and $10,000—a lofty figure for the Wixom, Michigan-based company. Fortunately, it was an expense Testek didn’t have to shoulder alone.
Thanks to Michigan’s State Trade Export Program (MI-STEP), Testek only had to shell out half of the cost of the Dubai Airshow—a quantity Patel could get behind. She calls MI-STEP, which aims to increase Michigan’s pool of small business exporters by assisting them with marketing-related expenses, a game changer for Testek. “MI-STEP has really helped us quite a bit,” she says, enabling Testek to introduce its test components to new global markets.
Another government-sponsored program that has contributed to Testek’s success is Michigan’s tax abatement policy. The company relocated from Lavonia, Mich., to Wixom in 2008, an expense that exceeded $9.5 million. “Luckily,” Patel says, “the state of Michigan kicked in a tax abatement so that we would get some reduced property tax and personal property tax.”
These programs signal good news for a state that has been inundated with bad press in recent years. Although for decades, Detroit—Michigan’s largest city—was characterized by its contributions to the music and automotive sectors, some believe the flashing lights of Motor City have all but faded. The decentralization of the automobile industry, coupled with rising unemployment and crime rates, have crippled the once vibrant city. But have Detroit’s—and by extension, Michigan’s—problems been overblown? Can the Great Lakes State reclaim its greatness? All signs point to yes, numerous economics experts say.
Luis Canales, director of Global External Affairs at Saginaw, Mich.-based Nexteer Automotive, doesn’t claim to be an economics expert but says he’s witnessed Michigan’s renaissance first hand. Right now, the state is undergoing a “once-in-a-generation” transformation, according to Canales. “Bold changes have made Michigan more business-friendly than ever,” he says, “and the state has economic development tools that are available to all types of businesses.”
He reveals that Nexteer—a global automotive parts manufacturer—has benefited from Michigan’s “low,” 6 percent corporate income tax, as well as the state’s “overwhelming” support for exporters.
“The state has significantly helped us improve the competitiveness of our business through a basket of assistance that includes talent acquisition and retention, business development missions, and various forms of economic incentives to create jobs and encourage investment,” Canales says.
The Michigan government currently doles out more than $150 million in incentives and financial assistance, a figure Canales says highlights the state’s “robust” economic development program. Simply put, he says, no U.S. state could provide a better avenue of growth for Nexteer than Michigan.
Timothy Nash, vice president of strategic and corporate alliances and the Fry endowed chair in free-market economics at Northwood University in Midland, Mich., is similarly optimistic about Michigan’s economic situation. Pointing to the number of big-name companies that call Michigan home—including Ford Motor Co., Kellogg’s, Dow Chemical and Whirlpool—Nash says Michigan houses a variety of industries. “We have a strong, diverse economy,” he says, “a bit stronger than many people may think.”
Nash credits Michigan’s “extremely friendly” tax system with bringing businesses to the state. Under the tutelage of Governor Rick Snyder, Michigan has developed a single business tax—turning what Nash called a “very complicated system” into a highly transparent one. Previously, businesses were required to maintain several accounts to ensure that they fulfilled all of the tax requirements. Fortunately, Nash says, “We have cut more than 600 regulations over the last couple of years, and we’ve become a right-to-work state, which certainly makes it a lot easier to manufacture as a company and, quite frankly, as a producer of a company.”
Entrepreneurs, it seems, have taken note: More than 200,000 new jobs have been created in Michigan since Governor Snyder took office in 2010.
In addition to praising the governor for this achievement, Nash recognizes the Michigan Economic Development Corp. (MEDC) for making great strides toward economic recovery. “What the governor and the MEDC have done is promote all the positive changes that have been made and the business-friendly environment that made Michigan one of the great economic states, especially in the first half of the 20th century,” he says.
Nearly three years ago, state officials launched a major campaign to help small- and medium-sized companies (SMEs) tap into international markets. What the MEDC found is that many of these Michigan-based companies were too domestic-focused and had missed key opportunities for business growth. Armed with this revelation, the MEDC compiled a team of experts to help these businesses expand their reach.
“Our export focus is really about existing companies that are trying to grow their businesses by reaching international markets,” MEDC President and CEO Mike Finney says. Michigan promotes this strategy through Pure Michigan Business Connect, a program designed to identify both international and domestic companies interested in taking advantage of Michigan’s supply base. “We’ve done a lot of homework, and there’s a lot of data that suggests Michigan is probably the top location in the U.S.— and maybe even one of the top two or three locations in the world—for making things,” Finney says.
It’s no surprise, he maintains, considering the state’s rich automotive history, as well as its proficiencies in the food-processing and furniture sectors. “Because of that, Pure Michigan Business Connect has become a neat way for us to facilitate business-to-business activity,” Finney says. Last year, the MEDC facilitated roughly $1.6 billion of B2B activity via Pure Michigan Business Connect;
Michigan companies accounted for the majority of this figure.
Along with helping businesses grow through Pure Michigan Business Connect, Michigan incentivizes companies financially.
Companies are offered property tax abatement for equipment and real estate at the local level—a benefit Testek enjoyed, Patel says—and access to equity capital, debt and grants on a statewide level. “We have programs to help with the [latter] three,” Finney says. Whether it’s a start-up company looking for investors or an established company needing capital, the MEDC can help, he maintains.
Finney says he regularly encounters companies looking for debt as they take on new business. Debt markets have been extremely tight since 2008, he explains, so Michigan has programs to help companies—particularly SMEs—get access to the capital they require. “We also have about $200 million a year in grants that are available to help companies be successful in a way our equity and debt programs hadn’t sufficiently been able to before,” Finney says.
Finally, the MEDC helps local companies with personnel needs, consulting them on everything from talent recruitment to training protocols. It’s a key incentive, Finney says, since without the necessary talent, businesses’ growth opportunities are stifled.
Fortunately, the agency doesn’t have to look too far to find top talent. Testek’s Patel says one of the biggest draws to Michigan is its diverse talent pool. “We have a lot of skilled workers and engineers in Michigan, thanks to the great universities that are out here,” she says, citing East Lansing’s Michigan State University, Houghton’s Michigan Technological University, Ann Arbor’s University of Michigan and Detroit’s Wayne State University as key examples.
“The other reason is that the Midwest tends to have people who are hardworking, with a great work ethic, so it’s also easier to do business if you have good people,” Patel says.
Geography is also enticing people to the state, Timothy Nash asserts. He points out that Michigan is located in the heart of the bi-national Great Lakes region, a trillion-dollar economy. “Even though we’ve gone through tough times in the last 20 years, [the Great Lakes] still has some of the biggest economies in the U.S. and in the world as trading partners,” Nash says, including New York, Illinois, Ohio, Indiana, Wisconsin and, obviously, Michigan. Canada is also included in the profitable region, with Michigan boasting numerous access points to its northernmost neighbor. Nash points out that this proximity makes Michigan a key beneficiary of the North American Free Trade Agreement.
In addition to Canada, many Michigan companies are also eying the BRIC countries—Brazil, Russia, India and China—for growth. Recently, the Midland Chamber of Commerce trekked to China to learn about manufacturing and export opportunities in Asia; local chambers have also visited Brazil, Russia and India for these reasons. To Nash, such actions illustrate Michigan’s proactive approach to reaching new markets, as well as the state’s new business-friendly environment. Governor Snyder should be proud, he says.
“I don’t want to speak for the governor,” Nash says, “but one of the things he has done is say, ‘Look, we are very interested in creating a great environment for everyone—domestic producers, importers and exporters.’ So what we need to do is be a highly competitive state as it relates to the [economic] environment.” After all, Nash says, if the right environment is cultivated, all parties benefit.
Both Nash and Finney are optimistic that with enough work, Michigan will reclaim its glory from the mid-20th century. A renaissance has come, they believe, and judicious companies should take advantage of Michigan’s many opportunities for economic growth while they’re still available.
State of Emergence